CHI Settlement Returns Some Balance to Market

The State Attorney General's office this week settled the antitrust lawsuit with CHI Franciscan, claiming the acquisition of WestSound Orthopedics and affiliation with The Doctors Clinic violated antitrust laws by reducing competition and resulting in higher prices.  As part of the settlement, CHI must divest their majority stake from the ambulatory surgery center in Silverdale and pay $2.5 million to the state.  That amount will be distributed to four entities in an effort “to increase access to health care on the Kitsap Peninsula” according to a recent press release.



It is a well-known fact that one of the largest obstacles to affordable health care is the high cost of American hospitals. In 2018, Americans spent nearly $1.2 trillion on hospital care and the average daily cost of a hospital stay in the U.S. was 2.6 times that of the average of other industrialized nations.



The single greatest driver of higher hospital prices is the rise of monopolies.  The ACA triggered an epic buying spree as hospitals acquired independent medical practices.  Since 2010, hospitals have merged into larger and larger conglomerates, which used their increased market power to extract higher reimbursements from the commercially-insured.



For instance, in August 2013, Harrison Hospital affiliated with the Franciscan Health System and shortly thereafter, Franciscan Health re-branded as CHI Franciscan.  In February 2019, CHI merged with Dignity Health to become Common Spirit, which is a colossal $29 billion health system comprising 142 hospitals and more than 700 care sites across 21 states. 

According to data from the Center for Medicare & Medicaid Services (CMS), hospital care in Kitsap County is 40% more expensive than in the surrounding communities.   In documents filed as part of the lawsuit, a former physician president at TDC summed up the affiliation with CHI best: “You can now get your outpatient care in a complex, relatively unsafe, and vastly more expensive location.”



What exactly does this settlement mean for Kitsap County residents?



While not perfect, the settlement goes a long way toward restoring balance to our one-hospital community.  The ambulatory surgery center (ASC) is simply a hidden gem, where same-day surgical, diagnostic, and preventive procedures can be performed for a fraction of the price of a hospital outpatient department (HOPD.) 



ASCs perform more than 7 million procedures for Medicare beneficiaries annually and cost Medicare just 53% of the amount paid to HOPDs for the same procedure.  For example, Medicare pays hospitals $1,745 for performing cataract surgery while paying ASCs $976 for the same procedure. In general, Medicare beneficiaries pay half as much out-of-pocket at an ASC compared to at a HOPD.



A second important settlement term requires CHI and TDC to inform patients of alternative imaging options to Harrison Medical Center. Kitsap has a freestanding imaging center, which offers high-quality care at a competitive price.  InHealth Imaging is another hidden gem, which in my personal and professional experience costs one-fifth the price of imaging at the hospital. 



Most importantly, this settlement signifies a symbolic change in the healthcare landscape as the consolidation trend appears to have played itself out. For the first time, the percentage of medical practices owned by hospitals has actually fallen, from a high of 32.6% in 2016 to 28% of the market in 2018.  Hopeful hospital administrators have now learned hospital-owned medical practices are not as profitable as once believed to be, despite the fact that facility fees boost reimbursement considerably.  One example is CHI’s CFO Mike Fitzgerald, who once wrote “I am all for taking advantage of hospital-based pricing… it would be great to drop a couple of million more to our bottom line.”  Unfortunately, the financial windfall has never materialized. 



I commend Attorney General Bob Ferguson for doing his part to improve access for patients to affordable healthcare and have come to believe the way to change the system is through the courts or legislation. 



To that end, Rep. David Cicilline (D-R.I.), who chairs the antitrust subcommittee of the House Judiciary Committee, has stated that hospital consolidation is one of his top priorities. Rep. Jim Banks (R-IN) has introduced the Hospital Competition Act of 2019. In the future, legislation like this would reduce cost of healthcare and protect small communities from hospital monopolization. 



This bill would:

1.      Approve a 400% increase in FTC staff to ensure hospital mergers do not increase costs,

2.      Reduce the incentive to merge by lowering Medicare reimbursement rates in monopolized markets,

3.      Provide grant funding for states trying to improve hospital competition,

4.      Eliminate the facility fee and reimbursing HOPDs at the same rate as independent physicians,

5.      Repeal incentives for accountable care organizations (which have not saved money),

6.      Repeal the ban on physician-owned hospitals, and

7.      Require hospitals to publish the cost of their 100 most common services

When healthcare prices increase, everyone pays, whether consumers realize it or not.  Higher insurance premiums are passed on by employers, the uninsured pay through bankruptcy proceedings, and the increased cost for Medicaid/Medicare patients is borne by the taxpayers.  Competition lowers prices.  And this settlement is a step in the right direction for patients in Kitsap County who value choice.